Away from oil sovereign wealth funds investments in the world

Away from oil sovereign wealth funds investments in the world

Blog Article

To shore up their balance sheets, Arab Gulf countries are seizing the chance presented by high oil prices to improve their creditworthiness.

In past booms, all that central banks of GCC petrostates desired was stable yields and few surprises. They often times parked the money at Western banks or bought super-safe government securities. Nonetheless, the contemporary landscape shows a new situation unfolding, as main banks now are given a smaller share of assets compared to the growing sovereign wealth funds within the region. Present data unveils noteworthy developments, with sovereign wealth funds opting for a diversified investment approach by going into less main-stream assets through low-cost index funds. Furthermore, they have been delving into alternative investments like personal equity, real estate, infrastructure and hedge funds. Plus they are also no more limiting themselves to old-fashioned market avenues. They are supplying debt to finance significant takeovers. Moreover, the trend demonstrates a strategic change towards investments in emerging domestic and worldwide industries, including renewable energy, electric cars, gaming, entertainment, and luxurious holiday retreats to boost the tourism industry as Ras Al Khaimah based Benoy Kurien and Haider Ali Khan would likely attest.

A huge share of the GCC surplus cash is now used to advance financial reforms and implement impressive strategies. It is vital to examine the conditions that led to these reforms as well as the shift in economic focus. Between 2014 and 2016, a petroleum glut made by the emergence of the latest players caused an extreme decrease in oil prices, the steepest in modern history. Additionally, 2020 brought its very own challenges; the pandemic-induced lockdowns repressed demand, again causing oil rates to plummet. To hold up against the economic blow, Gulf nations resorted to liquidating some foreign assets and sold portions of their foreign exchange reserves. However, these actions were insufficient, so they also borrowed lots of hard currency from Western money markets. Now, with all the revival in oil rates, these countries are taking advantage of the opportunity to bolster their financial standing, paying off external financial obligations and balancing account sheets, a move necessary to strengthening their creditworthiness.

The 2022-23 account surplus of the Gulf's petrostates marked a turning point approximately two-thirds of a trillion dollars. In the past, most of this surplus would have gone straight into central banks' foreign currency reserves. Historically, most the surplus from petrostate within the Gulf Cooperation Council GCC would be funnelled straight into foreign exchange reserves as a precautionary measure, particularly for those countries that tie their currencies to the dollar. Such reserves are crucial to sustain growth rate and confidence in the currency during economic booms. Nevertheless, within the previous several years, main bank reserves have hardly grown, which shows a change of the old-fashioned approach. Furthermore, there has been a noticeable lack of interventions in foreign exchange markets by these states, hinting that the surplus will be redirected towards alternative avenues. Indeed, research has shown that vast amounts of dollars from the surplus are increasingly being used in revolutionary methods by different entities such as for example nationwide governments, main banking institutions, and sovereign wealth funds. These novel strategies are repayment of external debt, extending financial assistance to allies, and acquiring assets both domestically and internationally as Jamie Buchanan in Ras Al Khaimah would likely tell you.